REITs Overhaul Attracts UK Insurers and Pensions

(March 23, 2011) — As pensions and insurers seek to invest more heavily in UK real estate, billions of pounds of trophy commercial properties may become available to retail investors for the first time by 2017.

Proposals announced by Chancellor George Osborne to simplify the UK’s Real Estate Investment Trust (REIT) regime may make REITs easier to operate and to understand, with the tax levied on bulk buying homes by large investors significantly reduced. Additionally, barriers to entry will be lifted. “If the closed company rules (for REITs) were to be eased, I think there would be some demand on the part of large pension funds, insurers and significant investors for that type of structure,” Bill Hughes, managing director of institutional fund manager L&G Property, a unit of insurer Legal & General, told Reuters.

The plans announced by the British Property Federation are expected to lead to a heightened interest in REITs in both the residential and commercial property markets. If the proposals become law, the relaxed rules for large investors could be enacted as early as July 2012.

This comes as good news to institutions such as pension funds, which have expressed increasing interest in investing in real estate.

Earlier this month, seeking long-term, liability matching assets, the $13.6 billion Aviva Staff Pension Scheme said it is aiming to up its allocations to real estate-related assets to 15% over the next two years. Aviva’s pension scheme invests 30% in growth assets and 70% in liability-matching assets, with the amount currently invested in real estate-related assets far below the 15% target.

Meanwhile, the Kuwait Investment Authority (KIA) said it will launch a real estate portfolio worth $3.6 billion to invest in the local market. “Such huge liquidity in the real estate market will reflect positively on local investment and real estate firms, and the country’s bourse as well,” Tawfiq Al Jarrah, the chairman of Kuwait Real Estate Union, said to the Kuwait News Agency.

Elsewhere, Patrick Thomson, head of J.P. Morgan Asset Management’s London-based sovereign wealth fund client group, noted that he sees opportunity in real estate and that as a long-term investor, conflict in the Middle East has not spurred huge changes in investment policy. When asked about opportunities in 2011, Thomson said that his team is increasingly interested in emerging markets, as well as credit markers and commercial global real estate. “Real estate is still below its pre-crisis levels, and we think there’s opportunity there as yields start to normalize,” he told aiCIO.